End users need to hedge the prices at which they can purchase these commodities for instance:
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A. B. C. D.D
Hedging is a risk management strategy that involves taking a position in a financial instrument or commodity to offset the potential losses from adverse price movements. In the context of commodities, end-users often hedge to lock in the prices at which they can purchase the underlying commodities they need for their business operations.
Option A: A university might want to lock in the price at which it purchases electricity to supply its air conditioning units for upcoming summer months.
In this scenario, the university is an end-user of electricity, which is a commodity. Electricity prices can be volatile, and the university may want to avoid the risk of price fluctuations by hedging. By locking in the price of electricity for the upcoming summer months, the university can ensure a predictable cost for its operations, regardless of any price fluctuations in the electricity market.
Option B: An airline wants to lock in the price of the jet fuel it needs to purchase to satisfy the peak in seasonal demand for travel.
Similar to the university, the airline is also an end-user of a commodity, which is jet fuel. Jet fuel prices can be volatile, and the airline may want to avoid the risk of price fluctuations by hedging. By locking in the price of jet fuel for the peak season of travel, the airline can ensure a predictable cost for its operations, regardless of any price fluctuations in the jet fuel market.
Option C: A cotton producer wants to hedge his exposure to changes in the price of fertilizers or his end product (cotton).
In this scenario, the cotton producer is a commodity producer, and hence exposed to price fluctuations in both the inputs (fertilizers) and outputs (cotton). The cotton producer may want to avoid the risk of price fluctuations by hedging. By hedging, the cotton producer can lock in a price for either the fertilizer or the cotton, thereby ensuring a predictable revenue stream regardless of any price fluctuations in the market.
Option D: Only A and B.
This option is a combination of the above scenarios, where both end-users and producers of commodities are hedging their positions.
In conclusion, hedging is an effective risk management strategy for both commodity end-users and producers to avoid price fluctuations and ensure a predictable cost/revenue stream.